Sushil Finance, in its November 2013 stock pick report on Diwali 2013 stock picks, had strongly recommended TCI for investment. The then prevailing price of TCI stock was Rs. 50.
When Radhakishan Damani cast his eye on the TCI stock and bought a chunk of 25 lakh shares (along with with 40 lakh shares of Gati), TCI took off like a rocket and soared to an all-time high of Rs. 96, giving gains of 92% in just 2 months to Sushil Finance’s loyal followers.
Now, if you scratch a bit under the surface, you will realize that Radhakishan Damani has scooped up TCI and Gati because he expects the Government to announce FDI in the logistics (e-commerce) sector before the elections. This will be the UPA Government’s last-ditch attempt to show that it does not suffer from policy-making paralysis. If that happens, TCI, Gati and all other stocks in the logistics and capital goods sector will surge even higher.
Anyway, better late than never. Let’s note Sushil Finance’s brilliant analysis of TCI and the logistics sector why these stocks are (still) a compelling buy.
(i) Huge Scope in the logistics sector for organized players:
The Indian logistics space is 90% commanded by the unorganized segment. Over the past few years, this sector is experiencing a shift towards the organized segment. It is witnessing the emergence of new concepts in automated warehousing, third party logistics, express cargo and logistics parks.
The industrial warehousing is expected to be driven by rising domestic and export‐import freight volumes, investments in infrastructure, organized retail, focus towards manufacturing and the anticipated implementation of goods and services tax. Additionally, other aspects such as third party logistics and logistics parks are also gaining significance in the Indian logistics space thereby promising relatively lower costs and smoother connectivity to multiple markets, going forward.
(ii) Huge investments in infrastructure and rising attention towards logistics:
The Indian logistics sector which is said to have a market size of nearly $230 bn, has been growing at 8‐10%. According to various agencies, it is expected to grow at ~15%, once the capex cycle revives. However, the cost of logistics in the country currently stands at roughly 13% of GDP as compared to the usual 8‐9% that prevails in the developed economies. The total consumption expenditure is expected to jump three‐folds to $3,600 bn by 2020 largely driven by food, housing and consumer durables. We believe, factors including shift from unorganized to organized, FDI in retail and e‐commerce, increasing industrial activities, growing exports and imports, planned expenditure towards infrastructure and rising demand for cost‐efficiencies and effective operations by the corporates promises for a consistent evolution of the Indian logistics space.
(iii) Cheap valuations for TCI in comparision to peers:
TCI trades at 5.2x of FY13 EPS (Rs.9.6) and 4.1x of FY15 EPS of Rs.12.1. The debt‐equity ratio stands at comfortable 0.71x; we expect the company to register top‐line of Rs.25,406 mn in FY15 with 3.5% of net margin that translates into an EPS of Rs.12.1 as against Rs.9.6 in FY13. We believe, the current valuations provide a decent margin of safety and the current investments promises robust growth going forward, thereby, presenting a lucrative investment opportunity at these levels. In addition, the company has never missed out on dividend payout in last 13 years. For past two years, the company has increased its dividend payout to 50%.